Posted 9:30 AM – Last week the market made a new all-time high as earnings season climaxed. Top and bottom line growth has been excellent so valuations are not stretched. The last mega cap tech stock (Apple) will report after the close today. With each passing day the excitement will wane. Get ready for a quiet stretch.

Revenue growth for S&P 500 companies that have reported has grown 5.2% and 73% of them have exceeded expectations. Cost-cutting has led to healthy profit margins and profits have grown 9.1%. These numbers are impressive, but it’s important to note that the strongest companies announce early in the cycle. We are more than halfway through Q2 earnings reports and they will taper off next week.

Politicians haven’t accomplished anything and they will leave for holiday. The healthcare bill, tax reform and the debt ceiling will have to wait. Investors get nervous when major issues go unresolved.

The Fed is also in recess until September. Their statement last week was hawkish and they will start reducing their balance sheet in September. Most analysts expect a December rate hike and investors will get nervous if we hit an economic soft patch.

Swing traders need to patiently wait on the sidelines. The news will dry up after the economic releases this week (ISM manufacturing, ADP, ISM services and the jobs report). These numbers will be consistent with moderate growth. Option implied volatilities are low and I don’t like selling bullish put spreads in this environment. If we get a small pullback in the next two weeks we can take action. With the market at an all-time high the upside potential is much smaller than the downside risk. Traders typically take the first two weeks of August off. Trading volume will be light.

Day traders still have the rest of the week to make decent money. Earnings reports will be steady and the economic releases will keep traders engaged. As I mentioned yesterday, don’t chase this opening rally. Stocks sold off after the opening bell yesterday and we might see a similar pattern today. The QQQ was weak relative to the SPY. Wait for the market to come in and identify non-tech stocks with relative strength. Use the first hour range as your guide. The market needs a major catalyst to fuel the next leg of this rally and I don’t see one.

This is the last gust of wind before we hit the summer doldrums. Try to make some money and plan to take time off. In a couple of weeks I will start watching for signs of weakness and there could be a nice put buying opportunity...

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